Earnings Call Transcript - ADM Q4 2024

Operator, Operator

Good morning, and welcome to ADM Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on a listen-only mode to prevent any background noise. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Megan Britt, Vice President, Investor Relations for ADM. Ms. Britt, you may begin.

Megan Britt, Vice President, Investor Relations

Welcome to the fourth quarter earnings conference call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer; and Monish Patolawala, our EVP and Chief Financial Officer. We have prepared presentation slides to supplement our remarks on the call today, which are posted on the Investor Relations section of the ADM website and through the link to our webcast. Some of our comments and materials may constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. These statements and materials are based on many assumptions and factors that are subject to numerous risks and uncertainties. ADM has provided additional information in its reports filed with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation and materials. Unless otherwise required by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events. In addition, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available on our earnings press release and presentation slides, which can be found in the Investor Relations section of the ADM website. I'll now turn the call over to Juan.

Juan Luciano, Chair of the Board and CEO

Thank you, Megan. Hello, and welcome to all of you who have joined the call. Please turn to slide four, where we have captured our fourth-quarter and full-year performance highlights. Today, ADM reported fourth-quarter adjusted earnings per share of $1.14 and full-year adjusted earnings per share of $4.74, in line with the midpoint of our guidance for the full year. Total segment operating profit was $1.1 billion for the fourth quarter and $4.2 billion for the full year. Our trailing four-quarter adjusted ROIC was 8.3%. Cash flow from operations before working capital changes was $3.3 billion. Though 2024 presented a variety of challenges, our diligent focus on improving operations has made a positive impact across the network. We achieved strong crush volumes in canola and rapeseed, as well as in our LATAM region. We made progress in addressing challenges in North America in soy assets, reducing unplanned downtime and improving crush volumes in December. We successfully ramped up run rates to meet demand at our Spiritwood facility over the course of 2024. We achieved a strong year in Starches & Sweeteners, where improved plant performance led to a 3% higher production volume year-over-year, helping several product lines in our North America business set operating profit records. We made progress in addressing demand fulfillment challenges in EMEA flavors while successfully integrating two new flavors acquisitions announced in early 2024. We significantly improved our safety record with a more than 35% year-over-year reduction in Tier 1 and 2 process safety incidents across our global network. In addition, we advanced key innovation initiatives in areas such as biosolutions and health & wellness, continuing to support growing customer demand in these parts of the business. Through this, we were able to maintain a strong balance sheet to ensure continued investment in the business and return of cash to shareholders. Earlier today, we announced an increase in our quarterly dividend making this our 93rd consecutive year of uninterrupted dividends. As we wrap up 2024, we are encouraged that we are gaining operational momentum and see opportunities to drive additional value. However, we also recognize that the external environment continues to pose uncertainties and challenges. Please turn to slide five. We've entered 2025 knowing that we need to remain agile to manage through shifts in both trade and regulatory policy around the world along with the related impacts on geographic supply and demand. With a global asset base and constantly evolving product innovation, our team is prepared to pivot as needed to support the resiliency of the Ag, food, energy, and industrial sectors we serve. We are taking these factors into account as we define our business priorities for 2025 with an emphasis on continuing to improve in the areas we control. First, we are focused on execution and cost management. Having made progress on the issues that impacted North American soy operations, we are applying that experience to the broader global network to drive further operational improvement and cost reductions. Similarly, we are applying what we learned from addressing demand fulfillment challenges in EMEA flavors to drive improvements in similarly challenged areas such as pet nutrition. We're actively managing our sourcing efforts to take advantage of lower pricing in many of our core input costs such as chemicals and energy. This cost agenda has also supported realigning our focus on data analytics to identify and assess new savings opportunities quickly. We're aggressively managing our SG&A and corporate costs as we make shifts in the business portfolio and lean into our strengthening digital capabilities. We have been diligent in finding ways to prioritize our organization's work, which has highlighted opportunities to eliminate non-critical third-party spend and structurally align our organization against our most critical efforts. As part of this prioritization effort, we announced that we're taking targeted action across both business and corporate functions to reduce approximately 600 to 700 roles, including approximately 150 unfilled positions. Decisions impacting our team members are never easy to make, and we are ensuring these colleagues are receiving transition support and an opportunity to apply for other critical roles within the company. In total, we anticipate the result of these cost actions to deliver in the range of $500 million to $750 million over the next three to five years, with $200 million to $300 million in 2025. In conjunction with improving our cost position, our second focus is on strategic simplification. As a company that has grown substantially over the past decade, we are continually evaluating how our portfolio balances the evolving needs of our customers, our expectations to achieve our return objectives, and our ability to be the most efficient operators of each part of the business.

Monish Patolawala, EVP and CFO

Thank you, Juan. Please turn to slide seven. Before jumping into segment performance, let me quickly recap some of the financial highlights for the fourth quarter and full-year 2024. While the fourth quarter played out largely as expected, we experienced negative pressure from market conditions later in December. For the full year, we finished within our previously guided adjusted earnings per share range. The team remained focused on key self-help actions to finish the year and enter into 2025 on a stronger footing. Now, transitioning into highlights on segment performance starting with AS&O. To start, let me provide some perspective on the broader market environment and the dynamics that shaped the fourth quarter. The operating landscape was challenging in the fourth quarter, with biofuel and trade policy uncertainty at the forefront. Ample global supplies, higher crush rates from Argentina, and uncertainty in biofuel and trade policy negatively impacted the crush environment. We also experienced high manufacturing costs. As a result, soybean and canola crush execution margins were approximately $10 per ton and $20 per ton lower respectively versus the prior period. Also included in the fourth quarter results for our crushing subsegment were $52 million of insurance proceeds related to the partial settlement of the Decatur East and Decatur West insurance claims. Increased pretreatment capacity at renewable diesel facilities as well as the continued elevated import levels of used cooking oil also weighed on both biodiesel and refining margins during the quarter. From a food oil perspective, we continue to experience softer demand from customers as they looked to cut costs. The origination environment was supportive in North America as the logistical challenges related to the U.S. river level eased compared to the prior year. Overall, against this backdrop, AS&O segment operating profit for the fourth quarter was $644 million, down 32% compared to the prior year period. For the full-year, AS&O's segment operating profit for the fourth quarter was $644 million down 32% compared to the prior year period. For the full-year AS&O segment operating profit of $2.4 billion was 40% lower versus the prior year. Looking at subsegment performance for the full-year, Ag Services' subsegment operating profit of $715 million was 39% lower versus the prior year driven primarily by lower South American origination volumes and margins, in part due to industry take or pay contracts. The stabilization of trade flows also led to fewer opportunities in our global trade business. Crushing subsegment operating profit of $844 million was 35% lower versus the prior year as ample global supplies drove more balanced supply and demand conditions, which negatively impacted margins throughout the year. Executed crush margins were approximately $10 per ton lower versus the prior year in soybean and approximately $15 per ton lower in canola versus the prior year. There were net negative timing impacts of approximately $165 million year-over-year. The full-year also included $76 million of insurance proceeds for the partial settlement of the Decatur East and Decatur West claims related to the incidents in 2023. Refined products and other subsegment operating profit of $552 million was 58% lower compared to the prior year as increased pretreatment capacity at renewable diesel facilities, higher imports of used cooking oil, aggressive competition among food oil suppliers to serve customer demand, and biofuel policy uncertainty negatively impacted margins. There were net negative timing impacts of approximately $430 million year-over-year. Equity earnings from the company's investment in Wilmar was $336 million for the full-year, 11% higher compared to the prior year. Turning to slide eight, carbohydrate solutions unfolded as expected in the fourth quarter as operating profit was largely in line with the prior year. The results reflected robust demand for ethanol; however, higher industry production drove a lower margin environment. Results also reflected strong North American starches and sweeteners performance, as well as $37 million of insurance proceeds related to both the partial settlement of the Decatur East and Decatur West insurance claims. For the full-year 2024, carbohydrate solution segment operating profit of $1.4 billion was flat compared to the prior year. Starches and sweeteners subsegment operating profit of $1.3 billion was slightly higher compared to the prior year, as strong volumes and margins in North America were offset by weaker co-product values and lower margins in EMEA and ethanol. The full-year also included $84 million of insurance proceeds for the partial settlement of the Decatur East and Decatur West claims related to the incidents in 2023. Vantage Corn Processes subsegment operating profit of $33 million was 28% lower compared to the prior year as lower margins due to higher industry production more than offset robust demand for ethanol exports. Turning to slide nine, in the fourth quarter in the nutrition segment, weaker consumer demand and ongoing headwinds from unplanned downtime at Decatur East drove lower organic revenues. Operating profit was $88 million in the fourth quarter, higher year-over-year due to improved mix, lapping the negative non-recurring items in the prior year and insurance recoveries of $46 million related to the partial settlement of the Decatur East insurance claim. The quarter also included a negative impact due to higher cost of goods sold associated with the termination of an unfavorable supply agreement. Fully on nutrition revenues was $7.3 billion up 2% compared to the prior year. On an organic basis, revenue was down 3%. Human nutrition revenue was roughly flat organically as headwinds related to the unplanned downtime and downtime at Decatur East and texturants pricing offset improved mix and volumes in flavors and health and wellness. Animal nutrition revenue declined due to unfavorable mix, negative currency impacts in Brazil, and lower volumes due to demand fulfillment challenges. Full-year nutrition segment operating profit of $386 million was 10% lower versus the prior year. Human nutrition subsegment operating profit of $327 million was 22% lower compared to the prior year, primarily driven by unplanned downtime at Decatur East and higher manufacturing costs, partially offset by improved performance in the health and wellness business, favorable mix in the flavors business, and M&A contributions. The human nutrition subsegment full-year results also included $71 million of insurance proceeds for the partial settlement of the Decatur East claim related to an incident in 2023. Animal nutrition subsegment operating profit of $59 million was higher than the prior year due to higher margins supported by cost optimization actions to improve mix and an increase in volume. Please turn to slide 10. In 2024, the company generated cash flow from operations before working capital of approximately $3.3 billion, down 30% relative to the prior year due to lower total segment operating profit. Despite the decline, solid cash generation supported our ability to invest in our business and return excess cash to shareholders. In 2024, the company returned $3.3 billion in the form of dividends and share repurchases, allocated $1.6 billion to capital expenditures to support the reliability of our assets and cost efficiencies, and approximately $1 billion to M&A announced in 2023 and completed in January 2024. Our strong capital structure remains a critical differentiator for the company. We will continue to seek opportunities to further strengthen our balance sheet to provide us financial flexibility to organically invest in the business to enhance returns and create long-term value. As Juan mentioned, targeted portfolio simplification actions, including consolidation and divestitures, will help align our focus on value creation. At the same time, we remain committed to returning cash to shareholders and will look to offset dilution and opportunistically seek share repurchases. We recently announced an increase in our quarterly dividend as well as an extension of our share repurchase program which is up to an additional 100 million shares over the next five-year period. Please turn to slide 11. We have already touched on some of the external market dynamics that we navigated in December, and several of these dynamics are expected to persist and create pressure on our first-half results for 2025, particularly for our AS&O segment. These include market headwinds related to U.S. biofuel policy uncertainty that has negatively impacted U.S. vegetable oil demand and biodiesel margins, higher global soybean stock levels, and an increase in Argentinian crush rates, which have pressured global soybean meal values, and trade policy uncertainty with Canada and China, which has driven volatility for canola crush margins. Taken together, these factors are driving significantly lower meal and vegetable oil values, which is reflected by replacement crush margins in North America near $40 per metric ton for soybean and $50 per metric ton for canola. In both cases, these are well below the levels that we experienced in the first-half of last year. As we look to the second-half of 2025, we see signs that make us optimistic about margin improvement over the course of the year. One clear indication is board crush value signaling a carry in the market in the second half. Additionally, as we progress through the year, we expect policy uncertainty to clear and strong fundamentals to support better crush and biodiesel margins. In particular, we expect clarity on 45Z guidance to support strong U.S. demand for crop-based vegetable oil. We also expect the expansion of global biofuels policy to support global vegetable oil demand. Key examples include Brazil with increases in biodiesel mandates and the newly implemented SAF mandates in Europe. Lastly, we expect improvement in the livestock sector to support robust meal demand. Overall, with the market set up into 2025, we are focused on operational improvements and accelerating cost savings to partially mitigate the less favorable market conditions and be in an excellent position to capture opportunities in the second half. Turning to slide 12, we have provided details that support our 2025 outlook for each segment for the first quarter and the full year. Starting with Ag services and oil sales, in the first quarter, we expect segment operating profits to be down approximately 50% relative to the prior year period, led by declines in crushing and RPO. On crushing, we anticipate both soybean and canola execution crush margins to be significantly lower than the prior year period. In RPO, lower biodiesel margins are expected to drive significantly lower operating profit for the subsegment in the first quarter compared to the prior year period. For the full year, we expect AS&O segment operating profit to be below or similar to 2024. Operational improvement should support higher volumes and lower manufacturing costs, which will partially offset the impact of lower margins for the segment. For the full year, we expect soybean crush execution margins to range from $45 to $55 per ton, down approximately $5 per ton at the midpoint versus the prior year. We expect canola crush execution margins to range from $50 to $70 per ton, down approximately $20 per ton at the midpoint compared to the prior year. For RPO, we expect operating profit to be down significantly compared to the prior year. We expect insurance recoveries related to the Decatur East claim of $25 million compared to the total recoveries of $76 million in 2024. In carbohydrate solutions for the first quarter, we expect segment operating profit to be down by approximately 5% to 15% compared to the prior year period. Strong margins and volumes in North American starches and sweeteners are likely to be offset by lower results in the EMEA region as higher corn costs and increased competition negatively impact margins. In ethanol, robust export demand is likely to support strong volumes. However, higher industry run rates are expected to result in break-even ethanol EBITDA margins. For the full-year, we expect lower carbohydrate solution segment operating profit relative to the prior year period, as strong volumes and margins in North America are expected to be more than offset by margin moderation in EMEA and ethanol. For the year, we anticipate ethanol EBITDA margins to be in the range of $0.05 to $0.10, down approximately $0.10 at the midpoint compared to the prior year. We expect an insurance recovery of approximately $10 million compared to the insurance recovery of $84 million in 2024. In nutrition, we expect first quarter operating profit to be down 50% compared to the prior year period. We expect to face higher raw material costs and negative impacts associated with continued downtime at Decatur East. We also expect lower demand for plant-based protein, higher insurance costs, and increased competition in texturants to drive lower margins in the segment. Notably, excluding the effects of $46 million of insurance proceeds we received in the fourth quarter of 2024, we expect Nutrition operating profit to be approximately flat sequentially in the first quarter. For the full-year, we anticipate Nutrition operating profit to be higher compared to the prior year with low to mid-single-digit revenue growth led by our Flavors business. Strong performance from recent acquisitions and improved supply chain execution is expected to support increased volume and an improvement in cost in human nutrition, helping to offset the headwinds associated with the ramp-up of operations at Decatur East. In animal nutrition, we anticipate continued mix benefits from cost optimization actions as well as an improvement in profitability of our Pet business. We expect an insurance recovery of approximately $25 million compared to insurance recovery of $71 million in 2024. Now looking at the consolidated outlook on slide 13, earlier today, we announced that we expect adjusted earnings per share to be between $4 to $4.75 per share. In considering this range, it is important to keep in mind the following: We expect lower margins in AS&O and carbohydrate solutions to create a material headwind. Our focus on improved execution and cost should produce $200 million to $300 million of cost savings, which includes the benefit of lower manufacturing and SG&A costs. We expect to reverse the negative take-or-pay impact in Ag Services from last year. We also anticipate less insurance proceeds in 2025. We currently expect approximately $60 million in 2025, with approximately 60% coming from reinsurance. This is compared to total insurance recoveries of $231 million in 2024 with approximately $133 million coming from reinsurance in 2024. Looking at our other guidance metrics, we anticipate corporate costs to be within the range of $1.7 billion to $1.8 billion. We expect the benefit of cost actions and a decline in net interest expense in corporate to be more than offset by elevated legal costs and the reversal of performance-based reductions in incentive compensation relative to 2024. In other, we expect lower results in ADMIS compared to the prior year due to lower interest rates. We expect capital expenditures to be in the range of $1.5 billion to $1.7 billion, and we expect D&A to be approximately $1.2 billion. We expect our effective tax rate to be higher in 2025 in the range of 21% to 23% due to the sunset of the biodiesel tax credit, a shift in geographic mix of earnings, and an expansion in the global minimum tax. Lastly, we expect diluted weighted average shares outstanding to be approximately 483 million shares and our leverage ratio to be approximately 2 for the full year. To conclude, I want to take a moment to thank our ADM colleagues for their focus, adaptability, and contributions through the close of 2024. These organizational efforts have been critical in driving progress and meeting challenges head on. As we navigate 2025, our focus will remain on what is within our control. A full commitment to remediating the material weakness and making strides to strengthen our internal controls, driving execution to improve operational performance and lower costs while sustaining functional excellence, unlocking additional capital to drive value, and position the company for long-term success. These efforts position us in our ability to navigate the current dynamic environment and reinforce our confidence in delivering on our commitment. Before I turn it back to Juan, I wanted to briefly mention a leadership transition we announced last week and that officially will take effect on March 1. Carrie Nichol is joining us as our new Vice President and Chief Accounting Officer. She joined us from Cargill, where she served as Senior Vice President, Chief Accounting Officer, and Global Process Leader. I am excited to make this important addition to our leadership team, and I look forward to working with her. Back to you, Juan.

Juan Luciano, Chair of the Board and CEO

Thanks, Monish. I'll briefly close by recapping our focus as we continue the path into 2025. With the uncertainty we've noticed in the external environment, ADM is prioritizing an internal focus on the areas we can best control. While administering this self-help we'll remain agile and ready for opportunities that may present themselves along the way. Our focus on execution and cost management will drive savings to the bottom line while ensuring that we're managing our assets and overall network as effectively as possible. Our focus on strategic simplification will deliver opportunities to optimize our portfolio and organization around those areas that deliver the strongest returns and where we are the strongest operators. Our focus on strategic growth will allow us to organically invest in proven winners while also ensuring our business is ready for the future. And our focus on capital discipline will position us to continue the return of cash to shareholders through dividends and selective share repurchases. We are confident that this equation sets ADM up for success in 2025 and ensures we have the necessary optionality in both the short and medium term while keeping our eyes on longer-term opportunities ahead. With that, we'll take your questions now. Operator, please open the line.

Operator, Operator

Thank you. Our first question for today comes from Tom Palmer of Citi. Your line is now open. Please go ahead.

Tom Palmer, Analyst

Good morning, and thanks for the question.

Juan Luciano, Chair of the Board and CEO

Good morning, Tom.

Tom Palmer, Analyst

Just on the nutrition segment, I wanted to make sure I understood the expected profit recovery. It implies a pretty big inflection as the year progresses. You noted Q1 has some maybe heightened headwinds. It sounds like at least for the second quarter, I wasn't sure if it was second quarter or for the full year, the startup at Decatur's noted as a headwind. And then, you've got the insurance headwind, especially in the second half. So, just trying to understand what really drives that inflection. Is it the belief that end markets get better? Is this cost savings plan maybe more concentrated in this part of the business? Thanks.

Juan Luciano, Chair of the Board and CEO

Yes. Thank you, Tom, for the question. Listen, nutrition has a big self-help story inside themselves as we have in ADM of course. But I think the main issue for Nutrition is you need to think about like three different buckets. There is one bucket that is the Decaturist plant, which is Specialty Ingredients, that is a big headwind and until we can bring the plant back that will continue to be. So, that is going to happen in the first quarter. Hopefully, the plant will be back in the second quarter we expect, and that will naturally bring an improvement to the results. The other bucket is a bucket that continues to go very well, which is, if you think about flavors and if you think about biotics, those businesses are doing very well. They are growing. They have grown 7% and 10% respectively in revenue in 2024. So that's going to continue and that's basically execution of their pipeline, and their pipeline is robust and very good. I would say, the third bucket is you have this steady improvement month-over-month, quarter-after-quarter of animal nutrition, which is not a revenue story but it's a margin improvement story. So, you have three different things, and when you put them altogether, we see a strong recovery in the last half of the year for nutrition.

Monish Patolawala, EVP and CFO

Tom, just to add, and I know you already picked it up, but just for math, when you look at it sequentially, so you're right, Q1 starts softer. Sequentially, after adjusting for the insurance recovery, which we have $46 million, we expect those results to be pretty much in line, Q1 equals Q4. And as Juan mentioned, the manufacturing cost, all the self-help starts kicking in in the second quarter to fourth quarter.

Tom Palmer, Analyst

Understood. Thank you.

Operator, Operator

Thank you. Our next question comes from Andrew Strelzik of BMO. Your line is now open. Please go ahead.

Andrew Strelzik, Analyst

Good morning. Thank you for taking my question. I wanted to ask about your perspective on vegetable oil demand, particularly for soybean oil. With the 45Z guidance mostly settled and the imported UCO not qualifying for tax credits, your outlook for vegetable oil demand seems quite positive based on your recent summary. I'm curious about the factors influencing this outlook, considering the market's concerns. Additionally, given the uncertainties affecting the first quarter, how do you anticipate the earnings split between the first and second halves compared to your typical distribution? Thank you.

Juan Luciano, Chair of the Board and CEO

Thank you, Andrew. There’s a lot to consider. We received guidance from 45Z in January, which was constructive, but there's still a lot uncertain. We need to finalize that guidance, likely by the end of Q1, and by then, we may have already sold for Q2, so we need to monitor its development carefully. That said, if we do the math, it likely suggests an additional demand of around 0.5 million tons of oil from UCO that will not meet the qualifying criteria. Our team expects the share of soybean oil to increase from 35% to 40%, while UCO might drop from 20% to 14%. Currently, the Ag Services and Oilseeds Industry is working through extra production capacity, with significant contributions from North America, Brazil, and Argentina. There is considerable uncertainty regarding tariffs on imports and biofuel policy. We believe that as policy uncertainties diminish throughout the year, margins will improve, evident in the current crush market. We are optimistic about manufacturing enhancements and the fundamental demand that will emerge once regulatory uncertainties are resolved. The livestock sector remains strong, and soybean meal is the most advantageous feed currently. The USDA forecasts meal growth around 5.5%, with possible upside. Additionally, global mandates are increasing, like the SAF initiative in Europe and Brazil's rising biofuels mandate. Once 45Z is clarified, we can expect increased demand from the U.S. This year, we anticipate a different pattern in the first half compared to the second, which is challenging to quantify, as it largely hinges on the government clarifying the regulatory environment, something we can adapt to but not control.

Andrew Strelzik, Analyst

Great. Thank you very much.

Operator, Operator

Thank you. Our next question comes from Ben Theurer of Barclays. Your line is now open. Please go ahead.

Ben Theurer, Analyst

Perfect. Thank you very much and good morning. Just wanted to follow up on your guidance cadence for Ag Service and Oilseeds, similar to what Tom had on Nutrition. But as we look at it, obviously, Q1 is a very tough comp and you already indicated that to be 50% down. But then in order to get to just slightly below 2024 levels, as your guidance indicates, that would mean that Q2 onwards; we should see improving trends on a year-over-year basis. I just would like to understand if you can help us reconcile that with lower insurance proceeds, but then at the same time you assume canola and soybean crush to be lower for the year? So, I just wanted to understand what is else in there that helps us to get those profits in line to below versus '24 with such a tough start in Q1?

Juan Luciano, Chair of the Board and CEO

I believe part of the challenging start in the first quarter is due to the fact that, while we may have seen some recent improvements in canola margins, we set our book at lower numbers in the fourth quarter. As a result, our first quarter figures might be lower than what current conditions suggest. We anticipate crush margins to be around $40 in the first quarter, and for the full year, we're expecting crush margins between $45 and $55 per ton for soy, which is about $5 less than last year's average. For canola, we expect margins of $50 to $70, which is roughly $20 lower than last year. Additionally, we are factoring in the improvements we anticipate in manufacturing. Last year, we undertook various automation and digitization projects in carbohydrate solutions. We have now completed an experiment at our oil seed plant in Brazil and are applying those insights moving forward. Therefore, we expect significant self-help in Ag services and oil seeds. We also anticipate that destination marketing will improve our direct farming procurements this year. Meal demand is expected to remain strong, and we foresee substantial improvements in soybean oil during the latter half of the year.

Monish Patolawala, EVP and CFO

And Ben, I would add to Juan's comments. Just when you think about RPO or biofuels and what clarity that gets. That should allow the second half to be far stronger than the first half. And Juan already mentioned, when you look at the forward curve that carries pretty strong in the second half. We are open for business quite a lot in the second half. So, hopefully, we are positioned to take advantage of that.

Juan Luciano, Chair of the Board and CEO

To capture that, yes.

Monish Patolawala, EVP and CFO

To summarize, we expect to start slow in the first quarter but anticipate improvement as the year progresses. The second half will be crucial, and we'll need to monitor various factors such as weather and crop yields. As we gather more information, we'll keep you updated. This is our current outlook.

Juan Luciano, Chair of the Board and CEO

One of the things also, Ben, as I forgot is we don't have the negative take-or-pay that we had last year in Brazil. So, we don't expect them this year. So, that would be a positive also for this year.

Operator, Operator

Thank you. Our next question comes from Heather Jones of Heather Jones Research. Your line is now open. Please go ahead.

Heather Jones, Analyst

Morning. Thanks for the question.

Juan Luciano, Chair of the Board and CEO

Good morning, Heather.

Heather Jones, Analyst

I wanted to ask a question. Good morning. I just wanted to clarify that your guidance doesn't include any expected impact from tariffs. Secondly, even if it doesn't include it, could you elaborate on how that would look for you? How are you considering the impact on operations, particularly in North America? Thank you.

Juan Luciano, Chair of the Board and CEO

The China retaliatory measures don't include agricultural products at this point. So, it's difficult to know. I think in the short term, our teams are making sure that they are doing everything possible to avoid the short-term impact. I think medium-term and long-term trade flows seem to stabilize. But of course, we saw in 2018 how corn imports from China were reduced by almost 9 million tons from the U.S. Whether that's going to be something that's going to happen again, we'll have to see. Again, when you think about the power of ADM in terms of our origination in so many parts of the world and our destination marketing in so many parts of the world, it provides an optionality that few companies have to capitalize on any environment. We don't know if net-net it will be a positive or a negative, but we will go through as we went in 2018.

Heather Jones, Analyst

Thanks so much.

Juan Luciano, Chair of the Board and CEO

You're welcome.

Operator, Operator

Thank you. Our next question comes from Steven Haynes of Morgan Stanley. Your line is now open. Please go ahead.

Steven Haynes, Analyst

Hey, good morning, and thank you for taking my question. I wanted to come back to Argentina and their recent export tax revision across the soy crush complex, and if you could just briefly, I guess, talk about how you think that's going to impact your businesses and then how maybe you see that policy evolving after turn because I think that's kind of when they had framed the current revision period for. So, thank you.

Juan Luciano, Chair of the Board and CEO

Thank you for your question, Steven. This policy was implemented effectively until June 30, and what happens after that is uncertain, as it depends on various microeconomic factors in Argentina. So far, we haven't seen a significant impact, largely because the farmers are currently focused on the harvest and planting stages. Additionally, concerns about the weather are prevalent among farmers, and crop conditions in some areas are not looking very promising. We need rainfall that is expected, but it may only stabilize yields rather than improve them. There are important details regarding the implementation of this regulation that we need to monitor. Previously, it was required to bring dollars into Argentina 30 days after shipment. Now, to qualify for the reduction in exports, you need to commit to bringing in 95% of the dollars within 15 days of issuing the license. This represents a significant change in financing that could have an unknown impact. We will have to assess the situation in April when farmers start with their seeds on top of the harvest, and they will have from April to May to determine the effects. At this moment, we haven't experienced much change. You're welcome.

Operator, Operator

Thank you. Our next question comes from Pooran Sharma of Stephens. Your line is now open. Please go ahead.

Pooran Sharma, Analyst

Great. Thanks for the question. I wanted to see if we could unpack 45Z guidance a little bit. I know there's been, the situation's fluid. Biden provided interim guidance, but I think there's a little bit left with final guidance. To my understanding, the biofuels industry with interim guidance is able to accrue tax credits, but I think you need final guidance to have them paid out. So we've seen some smaller operators already cease production. We just weren't sure about the larger producers. So I wanted to kind of get your take on 45Z guidance and then the State of the Union on the biofuels industry.

Juan Luciano, Chair of the Board and CEO

Yes, let's see if I can provide some clarity to that. First of all, this is preliminary guidance and of course, it needs to be ratified after the comment period, and then we need to see what the Trump administration will decide on this. So this still needs to be played out. I would say with the removal of the blenders tax credit, margins have been significantly impacted. And so, you may see some small producers that in the absence of all these, when they are not integrated and are isolated plants, have shut down. We were expecting to do that. Our integrated facilities, all our facilities are integrated, have allowed us to continue to operate, although we see the impact in Q1 margins that we're going to have as we have Q4 margins. So the industry definitely needs to bring some margin back into it. More importantly, we need to bring clarity because lack of clarity has pulled people off the market. What we know is the administration of President Trump strongly supports farmers and having an output for farmers' production. A strong biofuel policy, strong export policy, and strong bio-solutions type of product are all going to be very supportive.

Pooran Sharma, Analyst

Great. I appreciate the color.

Juan Luciano, Chair of the Board and CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from Manav Gupta of UBS. The line is now open. Please go ahead.

Manav Gupta, Analyst

Good morning. I'm sorry I dropped off briefly. So if somebody has already asked this, I apologize. But Monish, your key priorities when you took over, your focus was one on operational rigor and second, ensuring there are no material weaknesses in financial reporting, and what's the progress been on those two fronts? Thank you.

Monish Patolawala, EVP and CFO

Yes, thank you, Manav. I would say on both, and I'll start with the material weakness. As I said at the end of my prepared remarks, that is one item that we are very heavily focused on, which I am focused on. The progress on that, and I'll start by just saying, when we talked to you three calls ago, and you had asked the question, I said the company had enhanced the design and controls and documentation of inter-segment sales. We have continued to do that this quarter. We have continued to provide a lot of training to our personnel around the reporting and recognition of inter-segment sales. We have enhanced and tested many controls, and we need to continue to make sure that is sustained for a period of time before we can lift the material weakness. And that's what the teams are focused on. We also made an announcement that we've got Carrie Nichol who is joining us, the Chief Accounting Officer, who was from a similar role in Cargill. I'm excited to have her on board and my partner to help me continue this journey that we have started on remediating our material weakness. To answer your question on operating rigor, you can see that we've made progress. In Juan's comments, you can hear that some of the items where we have done root cause in our manufacturing facilities have yielded results. In December, we saw good outputs in some of our plants in North America. We also saw progress in EMEA, in our flavors business, in nutrition. As we look at the opportunities, Juan and I announced that we have a plan to get $500 million to $750 million of cost out over the next three to five years. It will come from multiple places. Number one is driving efficiencies in our manufacturing facilities. Number two is going after costs with our third parties. And number three is controlling SG&A and some of the actions we're going to take there. Adding on to that on the other side is the simplification agenda. As we continue to drive portfolio simplification, we see an opportunity to drive margin enhancement there too. At some of these facilities, whether you talk about consolidations or targeted divestitures, should allow us to benefit from that. We are going to do all of this while at the same time battling a lot more around the inflationary environment, whether it's the energy complex, as well as labor inflation or general inflation that continues to stay. So, focused on it, Juan said it, I've said it, it's a big self-help agenda. We know the environment that we are going into 2025. I think the team is quite confident that we can execute this cost-out plan that we have got over the next three to five years.

Manav Gupta, Analyst

Thank you so much for the update.

Operator, Operator

Thank you. Our next question comes from Salvator Tiano from Bank of America. Your line is now open. Please go ahead.

Salvator Tiano, Analyst

Yes, thank you very much. I want to go back to nutrition specifically for Q4. Your commentary was pretty positive in that human nutrition had higher volume and pricing versus last year. But if we adjust for last year's write-down, I think you would have made 39 million in human nutrition, whereas this year without the insurance, you would have made only 15 million. So it looks like the performance even with M&A was quite worse, so I cannot reconcile the two. Can you provide a little bit more color on why margins were so low and perhaps quantify the impact of this contract cancellation in Q4?

Monish Patolawala, EVP and CFO

Yes, I think when you look at it, yes, we've made progress on the growth in human nutrition, but the biggest piece that still continues to be a headwind is the specialty ingredients business. When you look at the continued inefficiencies from the downtime at Decatur East, the higher insurance premiums that we are seeing, as well as the lower pricing for texturants and demand, all put together is where we landed up for the fourth quarter. Going into 2025, we look at the same and say, when you look at Q1 and we say it's sequentially flat when you adjust for the insurance proceeds, the biggest driver there again on a year-over-year basis is the specialty ingredients. And so getting that plant back online in Q2 2025 and then doing all the self-help actions that Ian and his team are doing in nutrition will help us continue to grow nutrition's P&L in 2025.

Salvator Tiano, Analyst

Thank you. Just to understand though here, the fire incident happened I think in August or September last year, meaning that you should have lapsed, at least in my understanding, you should have lapsed the inefficiencies and the problems already in Q4. So that shouldn't have been an issue versus Q4 of '24 or it shouldn't be an issue in Q1 '25 versus what you posted this year?

Monish Patolawala, EVP and CFO

Well, we had inventory going into Q4 of '23, and that allowed us to reduce some of the impact that was there on a year-over-year basis. But also prices and the kind of tech spend that have come down, yes.

Salvator Tiano, Analyst

Okay, perfect. Thank you very much.

Operator, Operator

Thank you. Due to time, we'll take no further questions, so I'll hand back to Megan Britt for any further remarks.

Megan Britt, Vice President, Investor Relations

Thank you so much for joining the call today. If you have additional questions, please feel free to reach out directly to me. Have a wonderful rest of your day.

Operator, Operator

Thank you all for joining today's call. You may now disconnect your lines.